It's 9 o'clock on a Thursday evening, and business is picking up at the nightclub in Dongguan, China. A group of Taiwanese businessmen stride in, and two rows of young women in bright red cheongsams bow and chant a cheery welcome. A brisk, petite manager guides the men through a courtyard, where unseasonal Christmas lights play off the leaves of artificial plants, and into a cramped den lined with drab green couches, low tables, and a giant, karaoke-equipped television.

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The men take seats, and servers fill glass tumblers with weak tea and set down jugs of fizzy red wine. The manager returns with an array of women in skimpy skirts tottering on high heels. They line up and stand sedately as the manager comments on them the way a waitress in a Cantonese restaurant talks up the day's catch. "From Suzhou," she says of a sulky woman, "very lively!" She points to another, who she says is from Harbin, Manchuria. "Look how tall she is!"

A few of the men make selections, but most stay silent. The manager herds the women away and returns with another group. After the fifth set, every man has a companion, and the games begin — liar's dice, with penalties of one, two, or four glasses of the sickly sweet wine. While the men play, the women wiggle in their arms and help empty the jugs of wine.

When the men stagger out just past midnight, several of the women lie sprawled on the couches, asleep, and the floor is sticky with spilled wine and watermelon seeds. "We work hard every day all week," explains one of the more sober men, a rangy fellow with close-cropped hair. "Every so often we have to go crazy."

The tall woman from Harbin, willowy in a tight black skirt that barely covers her hips, retains a bit of dignity. Her name is Zhang Ping, and she's 21. Her eyes are bright as she talks about what brought her, and hundreds like her, to this strange place so far from home. At the end of a night, she says, she'll pick up a tip of 200 yuan, $24, half of which goes to the nightclub for food and a dorm bed. In a good month she clears up to 2,000 yuan; she could augment that by sleeping with her clients, which she says she doesn't do. "It's a tough life, being with a different man every night," she admits. "But there was nothing for me at home."

Dongguan is filled with stories like hers: No one really wants to be here, but they come because it's where the money is. The city lies at the heart of the Pearl River Delta, just inland from Hong Kong — in less than two decades, this part of South China has transformed from a subtropical backwater into a hub of global manufacturing. With a population of 40 million — just 3 percent of the country's 1.3 billion -�the region generates more than 7 percent of China's GDP, one-quarter of its foreign direct investment, and one-third of its exports. The MADE IN CHINA label you see on a toy or appliance in Kmart was likely affixed in a Pearl River Delta factory.

Dongguan makes everything — shoes, shirts, office furniture, wristwatches — more cheaply and efficiently than anywhere else on earth. Last year the city exported $19 billion worth of goods, more than the entire country of Chile. Many of these goods are electronic. Dongguan produces pretty much everything that goes into or hooks up to a personal computer: the circuit boards that run it, the fans that cool it, and the plastic box that houses it.

Gueorgui Pinkhassov/MagnumConstruction in the Xianxin village.

All this business functions in the absence of what we consider the bedrock rules of a modern economy. No reliable legal system enforces contracts. Theft of intellectual property is routine. Business disputes are often settled by hired thugs; on occasion, those thugs are the local police. But though it can feel like Dodge City, Dongguan works more like 19th-century Manchester, as perhaps the world's most extensive and systematic exploitation of transient labor by mobile capital. And the people who oversee this system — and profit handsomely from it — are the officials of the world's largest Communist Party.

Head north from Hong Kong to Guangzhou (formerly Canton) on the six-lane highway that a Hong Kong developer modeled after the New Jersey Turnpike, and you'll pass the shiny skyscrapers of Shenzhen, the "special economic zone" created in 1980 to herald the opening of China to foreign investment and trade. As you drive into Dongguan, the high-rises shrink into nondescript factories, punctuated by worker dormitories festooned with rows of laundered uniforms hung out to dry.

Officially, Dongguan is a city, but it's not, in any classical sense, a city at all. It has no central hub radiating order, no heart pumping out life and spirit. It's a postmodern waste-scape of continuous urbanization, broken only by the occasional glass spire of a luxury hotel. Everywhere you look, land is being hacked away, green hills dynamited down to red earth for the next factory, a new road, another housing development.

Think of Dongguan as the ungainly spawn of a shotgun marriage between feudalism and industry. It's an agglomeration of 32 townships, each centered around an old village, that are ruled by local party secretaries who answer, loosely, to city officials. In the early 1980s, industry exploded in Shenzhen under the banner of Deng Xiaoping's reformist slogan: "To get rich is glorious." Dongguan's party barons began to smell opportunity. Unlike Shenzhen, which requires residence permits, they could offer free access to migrant labor. So they competed to lure factories from abroad with tax breaks and land deals.

The firms that came from Taiwan were often called suitcase companies, because they were founded by entrepreneurs who showed up with a bag of cash and little else. They worked on the sly, since until 1990 Taiwan forbade companies from investing directly in the Communist mainland. When the law changed, thousands of Taiwanese businesspeople flooded into Dongguan, attracted by land and labor costs as much as 90 percent lower than what they faced at home.

One such economic prospector was Hayes Lou, the rangy man who talked about blowing off steam at the karaoke club. Today he's wearing brown suede shoes, chinos, and a sport shirt; he has a cowboy's gait, which he might have picked up during the two years he spent outside Missoula, Montana. There, with an American partner, he ran his first business, a bicycle helmet factory. Now he is secretary-general of the Taiwan Businessmen Association of Dongguan, and his duties include bailing out any of the city's 70,000 Taiwanese managers who might get arrested in nightclub brawls, and bringing food to the ones in jail. When a Taiwanese dies — most deaths are from natural causes, but street crime and business disputes sometimes lead to murder — Lou sends the body home. He is the expat Lone Ranger; appropriately enough, he drives a silver Jetta. "Everyone says Dongguan is a terrible, horrible place," he says with a broad smile. "But I love it. Every day there's something new."

Gueorgui Pinkhassov/Magnum"We're better than an embassy," says Hayes Lou, secretary-general and chief troubleshooter of the Taiwan Businessmen Association of Dongguan.

Lou has been in the Pearl River Delta for 15 years and in Dongguan for eight. He makes his money running a small packing materials company but spends as much time running the TBA, which sounds like a chamber of commerce but is really a substitute government. The organization maintains a branch office in each of Dongguan's 32 townships and operates a 24-hour hotline, which gets about 10,000 calls a year from local Taiwanese in trouble. To encourage men to bring their families, the TBA runs a school for Taiwanese children and is planning a hospital.

The association serves as a quasi embassy, since Taiwan, officially a "renegade province," has no diplomatic relations with China. "We're better than an embassy," says Lou. "They have to go according to the law. Whereas, if you get into trouble here, we know how to solve the problem — whether it's over or under the table." Just as an embassy official would, Lou spends quite a bit of time schmoozing local brass, whom he privately regards with contempt. One evening, Lou attends the monthly dinner given by one of the TBA's township branches. ("I could eat out every night like this," he says, glumly eyeing a mountain of crab, "but I'd get sick.") Midway through the meal, the oily man who chairs the township party office staggers to the microphone and bellows, "Together we and our Taiwanese brothers and sisters will make this town even more wealthy!" It's an odd sentiment for the party of the proletariat, but a common one nonetheless. As the man stumbles back to another round of toasts, Lou quietly exclaims in disgust: "Communists!"

For Communists, Dongguan's party barons make awfully effective capitalists: The city pulled in $1.8 billion in foreign investments last year. To understand where this money goes, consider the mouse hooked up to your computer. Regardless of its brand name, it was probably made by a Taiwanese firm, in a nondescript block of tiled buildings like those found in Dongguan's Shijie town. Primax, which owns one such plant, churns out 20 million mouses a year, of which 11 million are shipped to the US.

A small company launched in Taiwan in 1984 to make surge protectors, Primax in 1987 expanded to telephone accessories and relocated to Thailand to cut costs. But the firm found it hard to do business in another language, another culture. So, in 1989, chair Raymond Liang visited Hong Kong to explore the idea of moving production to China, even though doing so would violate Taiwanese law.

In Hong Kong, Liang met a man from Dongguan with connections to the town government of Shijie. They struck a deal, and Liang dispatched an executive to rent a building there and set up a surge-protector factory with 25 workers. Since Taipei lifted its ban on mainland investment, Primax has expanded its presence to nine plants scattered around Dongguan, employing 4,000 workers. Each month, in addition to the mouses, these plants produce 5.7 million surge protectors, 2.5 million cell phone chargers, 400,000 scanners, and 15,500 miles of computer cable, generating sales of about $330 million. Although 95 percent of Primax's production occurs in Dongguan, administration, marketing, and product design happen back in Taiwan.

Gueorgui Pinkhassov/MagnumAn industrial area in Shilong township, site of a special jail for Taiwanese.

Primax's story is a microcosm of the Taiwanese electronics industry. In the 1980s, Taiwan's business-friendly culture begat thousands of small companies that together came to dominate the global markets in computer peripherals. Taiwanese-owned firms now produce three-quarters of the world's motherboards and mouses, 70 percent of its keyboards, and 60 percent of its LCD monitors. Some of them still operate factories in Taiwan, but many don't: In a span of about five years in the mid-'90s, most of Taiwan's peripherals companies uprooted themselves for cheaper digs in mainland China, principally in Dongguan.

Companies like Primax depend on relationships with a network of suppliers. Each Primax mouse, for example, contains 40 components, of which Primax makes only two — the plastic housing and the cable. The rest come mostly from other Taiwanese firms with factories nearby. As goods move from factory to factory in Dongguan, the money that pays for them flows from account to account in Taipei.

Once the mouse parts arrive, the 350 workers on the Primax assembly lines solder the last elements to the circuit boards, attach the wheels or optical scanning panels, and snap on the housing. After a quality check, the mouses are boxed up and trucked to Hong Kong. Within six hours, they can be shipped off to Primax warehouses in the US and Europe.

Like most big players in computer peripherals, Primax relies on "vendor-managed inventory." This means that Primax's customers don't take title to a mouse when it's loaded on a ship. Instead, Primax continues to own it as it traverses the ocean and while it sits in warehouses overseas — up until it reaches the customer's plant, to be packed with a PC system.

It's the flip side of the efficient inventory management systems behind the success of companies like Dell. Since PC assemblers don't hold inventory, their suppliers have to. Manufacturers producing cheap commodity items like mouses, where margins are razor thin to begin with, have to bear a high cost in working capital. To survive, firms like Primax squeeze out every last inessential cost. One way to do this is to ensure that suppliers are located within a few hours' drive of the factory, so Primax can wait until the last minute to buy what it needs. It's why clusters of networked companies formed in Taiwan, why the clusters jumped to Dongguan en masse — and why it's almost impossible for newcomers from other countries to break into the market.

The other crucial cost-saver, of course, is cheap and reliable labor. In Thailand, Primax found wages relatively high and quality of work inconsistent. In China, millions of young people each year are pushed through grade schools and junior high, where, if nothing else, they learn how to perform repetitive tasks. And conditions in their hometowns are bad enough that they're willing to travel hundreds of miles for the chance to earn Primax's starting wage of 300 yuan a month — $36, or 21 cents an hour for a normal 40-hour week — a typical figure in the Pearl River Delta. Routine overtime can push that up to 450 yuan, and Primax's worker dormitories offer free room and board.

In background and motives, these workers differ little from Zhang Ping, the hostess at the nightclub. She graduated from high school in Harbin but flunked the college entrance exams (only about half of test takers pass). For two years she worked for 200 yuan a month in a state-owned wholesale company, but it went bankrupt. Then she tried a stint behind a sales counter, but no one was buying much in a city with 25 percent unemployment. Finally, a girlfriend from down south wrote to say there was good work at the nightclub. Despite the difficulty of her life, she has few regrets. Like most of the workers at the Primax factory, she sends much of her earnings home, to support her mother and sister.

And though she may not be aware of it, Zhang Ping also plays a role in the Taiwanese production system. "Our way of doing business is very friendly," explains Lou. "I'll go out to dinner with you, have some wine, then go out to a nightclub for a second round. We're very happy. Then the next morning I call you and say, 'Where the hell's my order?'"

Among Taiwanese businesses in Dongguan, Primax is at the top of the pyramid. Down toward the bottom are smaller companies run by people like Jerry Chen. Chen came to Dongguan five years ago, after an early and not very lucrative career as a keyboardist in a Taipei pop band. Eventually he found a piece of land in the township of Chang'an and set up a small factory where 100 workers turn four types of raw plastic resins into pellets. He sells the pellets to other local Taiwanese companies, which pour them into injection molding machines to make cable insulation and mouse housings.

On a warm Saturday morning, a breeze blows into Chen's office from a window overlooking a stand of reeds in a slow-moving Pearl River estuary. In the corner there's a triple-decker keyboard and synthesizer, reminders of his musical past. Chen serves oolong tea in the Taiwanese style, pouring a few tablespoons into one cup to be smelled and then into another for guests to drink from. "A hundred and fifty years ago the Westerners flooded China with opium," Chen declares as the scent of tea fills the room. "Now China is flooding the West with the opium of cheap goods."

Dongguan is central to both those stories. A few miles upriver from Chen's factory is the town of Humen, where the first opium war began in 1839, after the emperor banned the opium trade. To enforce his edict, he sent a special commissioner, Lin Zexu, who seized 1,500 tons of opium from British ships and dissolved it in pits of lime. In retaliation the British invaded with gunboats, forcibly opening the country to trade and seizing Hong Kong.

Today Lin Zexu is an official hero. His statue, in mandarin hat and long beard, presides like a benevolent ancestor god over a museum in Humen that preserves the lime pits, displays dioramas depicting the struggle against the opium trade, and offers visitors the chance to shoot rubber cannonballs at a mural of British warships.

Chen knows better. China is now admired and feared not because of Lin Zexu, the advocate of closed borders, but because the Chinese have become opium traders themselves. "Anything you can make for $100, we can make for $40," Chen says, summing up his commercial philosophy. "This is a very special kind of opium war."

Gueorgui Pinkhassov/Magnum"Anything you can make for $100, we can make for $40": workers at the Changda Wire plant in Chang'an.

Chen's biggest clientele is Chang'an's cable manufacturers, which need his plastics to coat their cables. They then sell the cables to the factories that dispatch telephones, appliances, and computer peripherals to desktops around the world. One major customer is Changda Wire, whose president, Juei Chen Wong, notes that the business culture of South China "is all based on the character of the boss. The factory is not just a matter of money, it's also a matter of spirit." Anywhere else, this might be a clich�, but here it's not, even if that "spirit" is rigid authoritarianism. To enter Changda's immaculate administration building, one trades shoes for slippers, just as upon entering a Taiwanese home.

Shoes must also be exchanged for slippers in the adjacent production building. Downstairs, men run the rotary machines that spin together copper wire and insulation; upstairs, women in white coats sit at laminated tables, attaching heads to the cables. Competition is fierce — in Chang'an alone there are about 20 factories, mostly Taiwanese, that do exactly the same thing. When Changda first came to Dongguan, in 1992, it set up a factory in the township of Shatou, about an hour's drive away. But soon it had to move to Chang'an, where its competitors were. Being in a different town, even just an hour away, meant losing out on the orders that would make the difference between profit and failure.

For workers, karaoke hostesses, and bosses alike, the common denominator of life in Dongguan is struggle. The Taiwanese bosses put in long hours away from their families in Taiwan — Chen says he works 14 hours most days — returning home for a week every few months. The Chinese employees at the factories and at the nightclubs live where they work and go home only once a year, for a few weeks at Chinese New Year.

Primax's mouse plant manager says his employees routinely log three hours of overtime a day — well above the limit of 36 hours a month set by China's labor law. Primax got permission for the extra hours from the local labor bureau (and pays regulation overtime wages), but many other factories are not so scrupulous. As long as the taxes and payoffs keep rolling in, local officials don't care whether plants obey the rules written in Beijing. Dongguan firms, says Hayes Lou, habitually understate the number of workers in their plants, to cut down on payroll taxes — one major shoe factory with 30,000 employees reports only 8,000. Often, the township party bosses lower those numbers further and pocket some of the tax money.

In the electronics industry, at least, employees have relatively safe jobs: The workflow is steady, the risk of injury low, and the main complaint tedium. Worse off by far are those who toil in Dongguan's shoe and garment factories, many of which are also run by Taiwanese and Hong Kong bosses. They alternate between periods of no work or pay and stretches of 16-hour days to meet seasonal deadlines. They sometimes lose fingers and limbs in hazardous machinery, and then are fired as a result, another violation of labor law. In Shenzhen, one of China's pioneer personal-injury lawyers had a run of successes, winning big awards for maimed factory workers. City officials tried to run him out of town.

Taiwanese bosses run different risks, as Lou well knows. He cashed out of his initial China investment, another bike helmet factory, in nearby Zhuhai, when the firm ran into financial difficulties and he began to get bad vibes from the Chinese partner. A few months later, the venture's remaining Taiwanese partner was invited to a "business meeting" in neighboring Hunan province. The meeting turned out to be with local police, who tossed him in jail on a bogus fraud charge. It took a year, and a ransom payment, to get the man released.

The Taiwanese can't resist the potential profit they can make in China's freewheeling quasi-capitalist playground, and they enjoy the freedom from daily responsibility. But they know it can be taken away from them at any moment, and that anxiety fills their time on the mainland with a strange intensity; when they're not compulsively working, it seems, many spend their time drinking and whoring.

However rarely they go back to Taiwan, they can never forget that they are strangers here. At a late lunch one afternoon at a Cantonese restaurant, Lou starts talking politics, a subject he mostly avoids. He's angry at Taiwan's president, Chen Shui-bian, who has recently lifted long-standing limits on the amount of money Taiwanese companies can invest on the mainland. It's an unusual opinion for a businessman.

"Chen doesn't understand these people," Lou complains. "They're Communists. If you don't have any limits, people will move everything over here. And then we are trapped." It's a common fear in Taiwan, that once the island's industrial base has moved to the mainland, the "renegade province" will lose its leverage. The tycoons building silicon-chip fabs up in Shanghai don't have to worry; they are too big to take down. But the little guys, like Lou and his friends in Dongguan, feel the uncertainty every day.

"On the surface," he says, "we're friendly with the local officials. But underneath we know they're Communists. We know that if they decided to declare war on Taiwan, we would lose everything overnight. My friends in the government ask me, What will you do if China goes to war with Taiwan? And I tell them, I will go back to Taiwan and fight against China. They say, Why? Your life is here and you're our friend — we'd make sure your factory is safe. But I tell them, Taiwan is my home. Wouldn't you fight for your home?"

So in the end, even Lou finds Dongguan "a terrible, horrible place." The reason he's here is simple, and it's the same reason Zhang Ping came a thousand miles to work in a karaoke bar, and why Jerry Chen's cable-making clients huddle together in a tiny hamlet, afraid of letting the competition out of their sight. "If you can help us make money," Lou says, "you are my mother and father. That is what keeps us here."

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